Dunham, who replaced McClendon yesterday as chairman of the
second-largest U.S. natural-gas explorer, will need to curb the
CEO’s penchant for costly expansions into uncharted oil and gas
fields while overseeing corporate belt-tightening under a
mandate from Chesapeake’s biggest investors.

The Oklahoma native brings expertise in shedding oilfields
and pipelines from his days at ConocoPhillips to a company
facing a cash-flow shortfall almost twice the size of its $12.5
billion market value. A chairman with more than three decades of
experience at a global oil company will strengthen a board that
failed to restrain almost 20 years of overspending by McClendon,
said Ed Hirs, a professor of energy economics at the University
of Houston.

The company replaced more than half its board yesterday
with Dunham and four other independent directors, in addition to
stripping its CEO of the chairman’s role.

McClendon has been shifting some drilling away from gas to
more profitable crude, and cutting thousands of jobs after
outspending cash flow in 19 of the past 21 years.

Asset Sales

Chesapeake has said it wants to sell as much as $14 billion
in assets this year. Its agreement this month to sell its
pipeline assets for $4 billion brought it about halfway to that
goal for a total $6.6 billion in sales so far this year.

The company must sell at least $7 billion in assets this
year to avoid a credit downgrade and a breach of debt covenants,
Moody’s Investors Service said last month. Chesapeake also is
seeking to sell its drilling acreage in Texas’ Permian Basin oil
fields, and to form a joint venture for its acreage in the
Mississippi Lime.

McClendon said in a March interview that he expects the
Permian Basin assets to fetch at least $5 billion and that they
may be sold in a few pieces rather than as a whole.

Chesapeake’s profit squeeze from gas prices that declined
to 10-year lows this year was compounded by concerns that
McClendon’s use of personal stakes in company wells to obtain
more than $800 million in private loans conflicted with his
professional duties. Investors have punished Chesapeake, driving
the share price down as much as 39 percent earlier this year.

Experienced Salesman

Dunham, a 73-year-old University of Oklahoma-trained
engineer, isn’t new to sweeping divestiture programs or tough
commodity-price environments. He’s also had his share of
management missteps.

During his tenure at the head of what became
ConocoPhillips, he sold pipelines, refineries, filling stations,
gas-processing plants, fuel-storage terminals and a deep-water
drilling rig to shore up the balance sheet.

Dunham also steered the company through two boom-and-bust
cycles in the oil market, including the December 1998 collapse
of U.S. crude to a 12-year low of $10.35 a barrel. When he
departed ConocoPhillips in October 2004, oil had rebounded to
$50 for a new record.

He collected a $26.6 million bonus in 2002 tied to the
merger that created ConocoPhillips, a public filing showed. That
was more than twice the size of the bonus Exxon CEO Lee Raymond
received for that company’s 1999 acquisition of Mobil Corp., the
biggest-ever oil industry combination.

Another Legend

Dunham “ran a very diversified oil and gas giant and at
the time that was one of the biggest mergers in history,” said
Jake Dollarhide at Longbow Asset Management in Tulsa, Oklahoma.
“He’s a legend, like Aubrey, although more seasoned. He’ll
bring a calming presence, some helpful perspective.”

In 1998, Dunham incorrectly predicted that the rise to
power of Hugo Chavez in Venezuela posed little threat to foreign
oil explorers such as Conoco that were drilling wells in the
Latin American nation’s heavy-oil belt. He told the Houston
Chronicle newspaper in November 1998 that prior nationalizations
in Venezuela in the 1970s had been carried out “with great
consideration and care” and full compensation.

That prediction proved wrong three years after his
retirement, when Chavez seized the company’s assets in the
country without payment, a dispute that is still being
adjudicated by international arbiters.

Control Issue

Dunham wasn’t available for an interview, Jim Gipson, a
Chesapeake spokesman, said yesterday.

McClendon, who co-founded Chesapeake in 1989 with $50,000
and 10 employees, has been criticized by investors including
Dreman Value Management Inc.’s David Dreman for obscuring the
line between private transactions and his corporate duties.
Dunham will be expected to preside over a new era of corporate
accountability, he said.

“It remains to be seen how much he will really take over
the management of the company and steer the board along the
lines that the large shareholders want,” said Dreman, who
controls about 1 million Chesapeake shares.

In the 1990s, Dunham sought to build Conoco’s oil and gas
reserves by dispatching engineers and geologists to far-flung
prospects in Vietnam and the former Soviet Union at a time when
the largest U.S. energy companies had dismissed domestic
oilfields as largely played out.

During that period, McClendon and Chesapeake co-founder Tom
Ward were among the pioneers of new drilling techniques that in
the next decade brought a renaissance in U.S. oil and gas
production.

Keeping Up

Dunham needs to show he kept up to speed on developments in
the oil industry since his departure from ConocoPhillips, said
John Parry, an analyst with IHS Herold in Norwalk, Connecticut.

“An important question is, what’s he been doing in the
interim?” said Parry, who followed Conoco during Dunham’s
tenure. “He’s been out of the way for several years now. Being
in retirement mode could be construed as a problem or a strong
point.”

Dunham takes charge of a board reconstituted at the
insistence of its two largest shareholders, billionaire Carl
Icahn and Southeastern Asset Management Inc. The company agreed
on June 4 to let Icahn and Southeastern pick four new directors
after Icahn likened the board to a fox that had “plundered the
hen house.”

New Directors

Chesapeake was the worst performing stock in the Standard
and Poor’s 500 Oil & Gas Exploration & Production Index this
year until Icahn’s May 25 announcement that he’d taken a 7.6
percent stake. Since then, the shares have gained more than 15
percent. Chesapeake rose 1.7 percent to $18.43 at 8:51 a.m.
before the start of regular trading in New York.

Intrieri, 55, has worked for entities associated with Icahn
since 1998, including as senior managing director of Icahn
Capital LP. Martin, 60, formerly was chairman and CEO at Saks
Inc., the department store operator. Alexander, 78, has the same
alma mater as Dunham and serves on the board of CVR Energy Inc.,
which is mostly owned by Icahn. Poses, 69, is a director at
Raytheon Co. and is non-executive chairman at TE Connectivity
Ltd.